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New statement released by the Internal Revenue Service of Chile: Regulation N° 42 from 2015

After the tax reform that took place in Chile (Law 20,780), the concepts of “sale” and “seller” were modified, affecting with VAT the regular sales of Real Estate property, excluding lands.

Following this, the Internal Revenue Service (SII) instructed, through the regulation No. 42, issues of interest to the construction and Real Estate activity, which will rule from 1.01.2016.

The 10 most important points of this regulation are:

1. The modification of the concepts “sale” and “seller” in the VAT law expressly excluded lands.

2. The sales agent’s rotation of a taxpayer, whether construction, real estate or otherwise, are subject to VAT tax debit.

3. For taxpayers with effective real estate business, the IBS will consider the nature, amount and frequency with which the sale of properties is made (one at least would be sufficient). For use of the tax credit it is not sufficient to establish the activity in the social script neither in the start-up of activities or other documents. Taxpayers who wish not to levy VAT sales of their properties, must demonstrate that they do not fall into none of these two assumptions of regularity established by law: sale of buildings by floors or departments within 4 years from its acquisition or construction, and bless than 1 year term among the acquisition or construction of the real estate property.

4. Taxpayers who have the ordinary course of property sale shall be entitled to 100 % of the tax credit. Those who are not regular will only entitled to a 35 % credit.

5. Sales of properties with housing subsidy are exempt or not subject to VAT.

6. Likewise, real estate will lose 100 % of the tax credit when making a financed sale with housing subsidy.

7. VAT proportionality will affect real state with respect to the goods acquired or constructed and whose sales are affected.

8. Sales of fixed asset properties are affected to VAT debit if at the time of acquisition they were entitled to tax credit.

9. Taxpayers who have the ordinary course of property will be able to call on retroactive VAT credit with respect of acquired or constructed property with a general term of up to 3 years prior to 1.01.16.

10. Real estate and other property sellers can claim back the surplus generated from the purchase of property of fixed assets, serving as a benefit for their liquidity needs.